By Timothy Hayden
High-deductible health plans are on the rise as a growing number of employers turn to consumer-directed health plans to try to curb costs — the portion of employees enrolled in HDHPs rose from 26.3% in 2011 to 39.3% in 2016, according to the latest statistics from the National Center for Health Statistics.
Employers that have gone the HDHP route typically offer a qualified plan that includes a health savings account to help pay for qualifying medical expenses tax-free. But there’s a great chance that if you offer a high-deductible health plan with a health savings account, your employees aren’t crystal clear on the benefits of their HSA. Here are three sure-fire ways to help workers understand the value of these savings accounts.
Treat HSAs more like a 401(k) than an FSA. It’s easy to understand why employees might confuse an HSA with a flexible spending account or a health reimbursement arrangement, which both put limits on spending and/or contributions and may not roll over from year to year. HSAs were introduced in 2004 but have seen steep growth — from 3.2 million accounts in 2006 to over 22 million at the end of 2017.
See also: IRS announces 2019 HSA limits
HSAs are likely to keep growing in popularity and may even be available to more people in the near future. There is bipartisan support for improving the way HSAs work, including allowing HSAs to be used for wellness benefits, allowing pre-deductible coverage for care to manage chronic conditions and streamline some technical prohibitions
Unfortunately, many employees aren’t getting the full benefits of their HSA. An Employee Benefits Research Institute study showed that most employees used their HSAs as “specialized checking accounts” for large expenses throughout the year, such as deductibles, copayment and coinsurance, rather than saving for the future. Instead, employees should consider contributing the maximum to their HSAs to use funds for current and future healthcare expenses. The opportunity to set aside pre-tax money for expenses in the future is an area where the HSAs and retirement plans, like 401(k) and 403(b), start to blend together in an employee’s retirement savings strategy.
Use HSAs as an investment strategy for retirement. Unlike other benefit plan spending accounts, HSAs are controlled by the employee. They decide if and how much of their money is deposited into the account. They also determine when and how the money is used. The balances roll over from year to year and can grow over time through additional contributions and any realized investment gains.
In addition, employers can contribute tax-free dollars if they choose — all of which is employee money. HSAs offer a triple tax advantage: the deposits and contributions are tax-deferred, growth is tax-deferred and withdrawals are tax-free if the money is used for qualifying medical expenses. This is even better tax treatment than the typical retirement plan.
For many employees looking to build up their retirement savings, this triple tax advantage puts an HSA as a complementary strategy with their retirement plan. The two accounts should be used to create a post-retirement savings strategy. For employers, this means the conversation you’re having about contributing to retirement plans should blend with the conversation you’re having about HSAs.
Use education to reduce the stress about HSAs. Helping employees understand how and why to invest in an HSA as part of a short-term payment strategy and a long-term investment strategy can help relieve financial stress and ensure that they are equipped to manage consumer-driven plans. Employers need to develop a communication plan that runs throughout the year as well as during the open enrollment period. You can never over-communicate when it comes to the advantages of an HSA.
Employees should be encouraged to contribute the maximum to their HSAs: $3,450 for individuals; $6,900 for families. They should also understand what “qualified medical expenses” are: generally, payments for prescriptions (not over-the-counter drugs), imaging, medical equipment, doctor visits and other out-of-pocket expenses that insurance doesn’t cover. In addition, HSAs can be used for COBRA coverage, long-term-care insurance, health insurance while receiving unemployment compensation, and insurance while eligible for Medicare (other than for Medigap), all tax-free.
In the push toward more consumerism, it’s imperative that employees understand how HSAs work. Contributing to one could greatly offset costs of healthcare today as well as later in life.